Monetary Policy

Monetary Policy:

Open Market Operations (OMO): When the Fed buys or sells bonds.

Discount Rate: FDIC member banks and other eligible institution may borrow short term loans from the Fed (bank borrow from the Fed)

Federal Funds Rate: FDIC member banks loan each other overnight funds. (banks borrow from other banks)

Reserve Requirement: The required amount a bank must keep on hand by law

Recession:

Open Market Operations:

The Fed buys bonds

reserve: ↑

Discount Rate:  ↓

Reserve Requirement:  ↓

Federal Funds Rate: ↓

Money Supply:  ↑

Inflationary Policy:
Open Market Operations: The Fed sells bonds

reserve:  ↓

Discount Rate:  ↑

Reserve Requirement:  ↑

Federal Fund Rate ↑

Money Supply: ↓